Bid talk lifts Rio as FTSE suffers a jittery day

Mining shares were in focus yesterday after late developments in two bid situations in the sector.

Rio Tinto jumped 236p to £66.45, making it the biggest riser in the FTSE 100, on talk that BHP Billiton may raise its proposed offer for its rival. Traders speculated that BHP might lift its terms from 3.4 of its own shares for every Rio share held to 3.8. Investors are also hoping BHP, up 27p to £20.20, might sweeten the deal by adding some cash to the all-share proposal.

Going the other way was Kazakhmys, down 38p to £17.35 as its rival Eurasian Natural Resources Corporation decided not to proceed with the £15.50 offer it had unveiled just last Friday. ENRC, up 41p to £13.77, said it was looking at other investments, mergers and acquisitions.

Overall, the market went through another volatile day, but after trading in a 120-point range the FTSE 100 closed just 8.7 points lower at 6211.9. There was enough gloomy news around to have sent it even lower. April's annual inflation rate hit a much higher than expected 3%, casting doubt on the Bank of England's ability to cut UK interest rates next month. Indeed, the economic team at Morgan Stanley said it believed rates would now remain on hold until February 2009, when they would be raised by 25 basis points.

This would do nothing to help the mortgage banks, already under pressure yesterday after news of yet more write-offs at Alliance & Leicester. A&L's shares slumped 51.75p to 458.75p as it announced a £192m hit from toxic loans, and some of the takeover speculation faded away. One of its supposed suitors, the French bank Crédit Agricole, has financial troubles of its own and yesterday revealed a €5.9bn cash call to help bolster its balance sheet.

The gloom spread to HBOS, down 20.5p to 485p, and Bradford & Bingley, 14.25p lower at 158.75p. B&B was not helped by Credit Suisse cutting its price target from 190p to 135p.

Housebuilders were undermined by downbeat trading statements from Redrow and Galliford Try. Redrow closed 22.25p lower at 270.5p as it said reservations in the second half of its financial year were 50% down on the same period last year, and it was becoming increasingly difficult to predict reservation and cancellation rates accurately. Galliford fell 2.25p to 55.75p. It said full-year profits would be about £60m, compared to the more than £70m expected by analysts.

Rival Barratt Developments, due to unveil a trading update today, lost 18.25p to 257.25p on concerns about trading and suggestions it may need a rights issue. Goldman Sachs issued a sell note, saying: "Barratt is unlikely to outperform in the current environment, as constrained mortgage availability contributes to further weakness in housing demand and pricing. Recent interim updates from rival UK housebuilders suggest the downturn is intensifying. In addition, speculation that Barratt will announce a rights issue or write-downs at its interim update could provide further downside."

Takeover speculation surrounded the technology sector in the wake of Hewlett-Packard's $12.6bn (£6.5bn) offer for Electronic Data Systems. LogicaCMG added 3.25p to 125.5p as Evolution Securities said: "We see Logica as having the greatest merger attraction of all UK IT large-capitalisation companies on a two-year view, and the Hewlett/EDS news underscores that."

Elsewhere, the software group Misys, which is merging its healthcare business with its US rival Allscripts, rose 10.5p to 178.25p on renewed bid talk.

The pubs group Mitchells & Butlers slipped 1.25p to 341.5p despite news that Elpida, an investment vehicle run by the Irish tycoons John Magnier and JP McManus, had bought 5m shares to take its stake to 7.23%. Last week, the property magnate Robert Tchenguiz raised his M&B shareholding to 26.09%.

The security group G4S lost 15p to 225p despite an upbeat trading statement, as it placed 127m shares - 9.9% of the equity - at 222p with institutions to raise £282m to reduce debt and expand through acquisitions.

The broadcaster ITV was 2.3p lower at 64.5p after Goldman Sachs issued a sell note, and forecast a severe slowdown in advertising in the second half of the year. But the exhibition and conference organiser ITE added 8.75p to 164p in the wake of ABN Amro moving from add to buy, and raising its price target from 175p to 180p. It said: "The group has announced a small but attractive regional Russian acquisition [Siberian Fairs] and we expect more to come."

On Aim, MicroEmissive Display, a designer of low-power microdisplays, fell nearly 52% to 12.25p as it warned it would not reach month-on-month profitability until next year because of the slowdown in the consumer electronics market. Finally, Freeplay Energy, a specialist in wind-up radios and torches, ended 1.25p higher at 6p after full-year revenues nearly doubled.nick.fletcher@guardian.co.uk